Earnings Preview | Texas Instruments Kicks Off Chip Stock Earnings Season, Expected to Signal Recovery in Analog Chips

According to the Zhitong Finance APP, Texas Instruments (TXN.US), a major American chip giant focusing on analog chips and embedded processing solutions, will announce its fourth-quarter earnings report for 2024, ending in December, after the U.S. stock market closes on January 23, Eastern Time. Investors are looking forward to the chipmaker reporting better-than-expected results to kick off the earnings season for chip companies on a positive note, while also hoping for optimistic signals regarding the recovery cycle of analog chip demand. Previously, analog chip giant Analog Devices (ADI.US) and United Microelectronics Corporation (UMC.US), which focuses on mature processes such as 14nm and 28nm, have both released optimistic signals regarding the recovery of demand in two core application areas for analog chips—automotive chips and industrial chips.

Wall Street analysts generally expect Texas Instruments to report earnings per share of $1.19 for the fourth quarter in the upcoming earnings report, indicating a year-on-year decline of 20.1%. Total revenue for the fourth quarter is expected to be approximately $3.86 billion, a decrease of 5.4% compared to the same period last year, indicating that the year-on-year decline has significantly narrowed compared to recent quarters.

Most analysts indicate that Texas Instruments' customers are significantly digesting excess inventory, and with generative artificial intelligence gradually integrating with consumer electronics and industrial applications, the timing for order recovery and the resurgence of analog chip demand is expected to arrive around mid-year or in the second half of this year after several consecutive quarters of revenue decline.

Texas Instruments is one of the largest manufacturers of analog chips globally, with most of its chip products performing simple yet crucial functions, such as converting power supplies to different voltages in electronic devices. More importantly, analog chips have played an indispensable role in various key functional modules and systems in electric vehicles in recent years, including power management, battery management, sensor interfaces, audio and video processing, and motor control.

Texas Instruments has the broadest customer base and the largest range of products among chip manufacturers, making the company's performance and outlook data a predictive indicator for demand across various industries. Most of its chip products are used in industrial applications and electric vehicles.

If Texas Instruments, one of the largest manufacturers of analog chips globally, announces better-than-expected optimistic results and outlook, it will signal a "good start" for the earnings season of U.S. chip giants, potentially continuing to boost the bullish trend of the Philadelphia Semiconductor Index, known as the "global chip stock barometer."

Chip giants such as ON Semiconductor (ON.US), Intel (INTC.US), ASML (ASML.US), KLA Corporation (KLAC.US), Qualcomm (QCOM.US), AMD (AMD.US), and NVIDIA (NVDA.US) will successively disclose their latest financial reports and performance outlook data from the end of January to the end of February. The performance of these chip giants is crucial for the global chip industry's demand outlook and is very important for the movement of the Nasdaq 100 Index in the financial market.

Analysts' Outlook on Texas Instruments' Various Segments

Over the past 30 days, Wall Street financial institutions have generally maintained their expectations for Texas Instruments' earnings per share for this quarter. It is crucial to consider any changes in earnings per share forecasts before the company announces its earnings; if there are no significant upward or downward revisions, it indicates that analysts have a consensus on the performance outlook, and stock prices often experience smaller fluctuations after the earnings announcement These revisions play a key role in predicting investors' potential reactions to the company's financial report results. Multiple empirical studies consistently show a close correlation between earnings per share forecast trends and short-term stock price movements.

While investors typically rely on general earnings per share and revenue estimate data to assess quarterly business performance, a deeper analysis of analysts' forecasts for certain key performance indicators often provides a more comprehensive understanding of performance. Given this perspective, it is time to take a comprehensive look at the average forecast values of Texas Instruments' specific metrics that Wall Street analysts routinely monitor and predict.

According to the collective judgment of analysts, "other revenue" is estimated to be approximately $213.67 million. This estimate indicates a year-on-year change of +4.2%.

Analysts generally expect "embedded processing revenue" to reach $588.98 million. This estimate suggests that revenue from this business will decline by 21.7% compared to the same period last year. Analysts' assessments indicate that "analog business revenue" will reach approximately $3.05 billion, which suggests a -2.2% change compared to the same quarter last year.

Focusing on Texas Instruments' core business operating profit, Wall Street analysts generally predict that "the operating profit of the analog business in the fourth quarter" will reach approximately $1.15 billion; compared to the current forecast, the company's performance report for the same quarter last year showed $1.28 billion.

The collective assessment of analysts shows that "the overall operating profit of other businesses" is estimated to be $3.72 million; compared to the current estimate, the company's profit for the same quarter last year was approximately $5.8 million.

Analysts expect that the operating profit related to the "embedded processing business" will reach approximately $103.78 million; compared to the current forecast data, the company's profit for the same quarter last year was approximately $195 million.

AI may help Texas Instruments enter the long-awaited "analog chip demand recovery cycle"

Many analog chip manufacturers, including Texas Instruments, focusing on the industrial and electric vehicle markets have generally continued to perform poorly since 2023, as their revenue has been severely impacted by customers' inventory surplus, and order volumes have slowed across the board. The sharp shortage of analog chips post-COVID-19 led industrial customers to accelerate inventory accumulation, and more importantly, the demand for electric vehicles and industrial manufacturing remains weak and difficult to alleviate. Under long-term inventory accumulation and in a macro environment where the Federal Reserve maintains high interest rates, related demand in industrial manufacturing and global electric vehicle demand has significantly cooled since 2023, compounded by the gradual withdrawal of government subsidies related to electric vehicles, further weakening electric vehicle demand.

Artificial Intelligence (AI) is gradually being integrated into Texas Instruments' business, which is fully focused on the automotive and industrial sectors, driving technological innovation in production and hardware deployment transformation in these two areas. Since the second half of 2024, demand has been continuously recovering, while downstream inventory reduction is also helping demand escape the "sluggish period." Especially in the electric vehicle sector, AI is not only applied in autonomous driving and advanced driver-assistance systems (ADAS) but is also used to optimize production manufacturing and in-car entertainment experiences. In the industrial manufacturing sector, AI is widely used in smart manufacturing, predictive maintenance, and automated control By integrating AI-related architectures into hardware systems, analog chips can support real-time inference of deep learning models, ensuring that AI systems can quickly respond to environmental changes. The TDA4VM processing platform is a high-performance chip platform newly designed by Texas Instruments for autonomous driving and industrial applications. It integrates multiple processors (including CPU, DSP, AI accelerators, etc.), supports various deep learning inference tasks, and can provide real-time data processing through edge computing. This platform can process data from vehicle perception systems, vision systems, radar, and LiDAR.

Since 2024, the DSP chips upgraded and launched by Texas Instruments have begun to be used on a large scale in many electric vehicles and industrial applications, especially in scenarios requiring efficient signal processing and low power consumption. By combining deep learning and edge computing, Texas Instruments' DSP chips can accelerate the AI inference process, helping to achieve faster responses and decisions.

The financial report released by global analog chip leader Analog Devices at the end of November last year showed that the demand for electric vehicles and industrial analog chips, which has been sluggish since the Federal Reserve's interest rate hike cycle in 2022, is expected to enter a recovery phase. Analog Devices' financial report as of November 2 indicated that all end application markets covering industrial, automotive, communications, and consumer electronics showed month-on-month growth, indicating a significant turning point in the demand for analog chips that has been sluggish for several quarters. Among them, Analog Devices' Q4 consumer electronics analog chip revenue unexpectedly showed a year-on-year increase, with a growth rate exceeding 30%, reinforcing the logic of recovery in demand for consumer electronics such as PCs and smartphones.

The financial report from Analog Devices and its relatively optimistic growth expectations for 2025 reveal that the demand for analog chips, which has been sluggish since 2022 and hovering at a "bottom" stage, especially for electric vehicle analog chips, may soon enter the long-awaited recovery phase.

Since the second half of 2023, driven by the AI frenzy, global enterprises and government agencies have seen explosive demand for NVIDIA's (NVDA.US) AI GPU series products, leading to a surge in demand for server CPUs, enterprise storage chips, and high-performance Ethernet chips. Even PC and smartphone chips have shown a trend of demand recovery due to the wave of edge AI large models, but the analog chip industry has consistently signaled sluggish demand. With the unexpected financial report and performance outlook from Analog Devices, the fundamentals of the analog chip market may have reached a turning point.

In addition, UMC, which focuses on mature chip processes such as 14nm and 28nm, announced its operational data in January, showing that it achieved revenue of NT$18.97 billion in December, a year-on-year increase of 11.7%. More importantly, after a significant decline of 20% in total revenue for the entire year of 2023, UMC is expected to regain a growth trend in 2024. Data shows that from January to December, UMC's total revenue increased by 4.39%, reaching approximately NT$232.3 billion.

Unlike TSMC (TSM.US), known as the "king of chip foundry," which focuses on the most advanced chip process technologies (such as 5nm, 4nm, and 3nm), UMC provides mature process technology from 14nm to 28nm and larger values, focusing on mature process nodes These chip products based on UMC's mature nodes are widely used in communications, consumer electronics, automotive electronics, and industrial fields, focusing on stable and cost-effective mature nodes to meet the overall demand of traditional industrial sectors and the mid-range consumer electronics market. UMC's total revenue in 2024 is expected to regain growth driven by strong orders in the fourth quarter, indicating that the demand for mature process chips such as 14nm and above analog chips is also entering a recovery phase.

The analyst team at Wall Street financial giant Bank of America recently stated in a report that chip stocks could still be one of the best-performing sectors in the U.S. stock market in 2025, and the contribution to growth is expected to expand from chip companies like the "AI chip trio," which fully benefit from the AI boom, to "non-AI" chip stocks such as analog chips and electric vehicle chip stocks that have long underperformed the U.S. stock market and the Philadelphia Semiconductor Index